The transaction is expected to close in the fall of 2016 and be structured tax-free to shareholders, the Omaha, Neb.-based company said Wednesday in a statement. The remaining company will change its name to Conagra Brands and be based in Chicago.

Mr. Connolly has completely overhauled ConAgra since taking the helm in April. Earlier this month, he agreed to sell ConAgra's struggling private-label unit to TreeHouse Foods for about $2.7 billion, undoing an acquisition his predecessor had made less than three years earlier. Now Mr. Connolly is splitting off a business that mainly sells frozen potato products to restaurants and other food-service operators from the company's well-known consumer brands.

"The separation of our Lamb Weston specialty potato business from our consumer brands business is the best way to drive shareholder value," said Mr. Connolly, who will lead Conagra Brands after the split. "The separation will enable each company to sharpen its strategic focus and provide flexibility to capitalize on the unique growth opportunities in its respective market."

After the separation, Conagra Brands will work to improve operational efficiency and expand margins while returning cash to shareholders. The company said it's committed to maintaining an investment-grade profile and paying a "strong and attractive" dividend.

Lamb Weston generated about $2.9 billion in revenue in the company's fiscal 2015, accounting for the majority of sales from ConAgra's Commercial Foods unit. The company's capital structure hasn't been determined, and its management team will be announced at a later date.